Eq: Total Market

(New York)

Now that many signs are pointing to an improving US economy, some investors think it is time to shift out of growth stocks and into more cyclical sectors. That said, cyclicals—which rely on consumer spending improvements—are going to be a hard place to invest because of the highly variable recovery path for different sectors created by COVID. With that in mind here are a few places to look: transportation (excluding airlines), such as the iShares Transportation ETF (IYT); or infrastructure, like the Global X Infrastructure Development ETF (PAVE); ecommerce and home entertainment, such as the Amplify Online Retail ETF (IBUY); or housing, either through single names like Home Depot and Lowe’s, or a broader homebuilders ETF like the SPDR S&P Homebuilders ETF (XHB).


FINSUM: We find homebuilding to be a very interesting opportunity. One of the reasons that the real estate market has held up is that homebuyers are typically those higher on the socio-economic ladder, whose incomes are much less likely to have taken a hit from the pandemic. Therefore, the growth trajectory for that whole sector looks strong.

(New York)

The initial winners from the pandemic were sorted out long ago—FAAMG, Zoom etc. Investors are now trying to figure out who the winners will be over the potentially long next stage. The recovery may take several years and the economy is changing right before our eyes, so this is a time of great alpha capture if you can identify the next big trends. With that in mind, here are three stocks to look at: MercadoLibre, Ryan Air, and SAP. The first is like the Alibaba of Latin America. Their market cap is only $60bn versus Alibaba’s $800bn, and Latin America is roughly half the size of China (population-wise), so a $400 bn goal seems reasonable. It almost feels like investing in an early stage Amazon. Ryan Air is a best-of-breed European airline whose operating model and unit costs run circles around the competition. They will likely gain the most as airlines come back. Finally, SAP is a great cloud play. They are relatively new to the cloud game, but grew very quickly through acquisition, so as the market digests their new business line and WFH drives huge cloud growth, they should be in a position to benefit.


FINSUM: These seem like very refined and well-considered choices. MercadoLibre feels like the largest opportunity to us.

(New York)

The market is falling again the day after the Labor Day holiday, and many tech stocks are nearing or in correction territory. It is a rough start to the week, and Goldman Sachs is not offering much hope. The firm published a research piece this weekend which was bullish on stocks overall, but said that another 10% correction may arrive soon. Goldman says that if investors start to doubt the trajectory of the recovery in the face of the super quick snapback in economic output that the market has priced, then stock prices will likely fall.


FINSUM: On the whole Goldman was pretty positive, but they also clearly allowed room for a short-term “shake out” in share prices. This correction we have on our hands might also lead to a change of market leadership, which would be an interesting shift.

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